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Critical Topics and Their Significance for the UPSC CSE Examination on September 02, 2024

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Why did the Centre alter its pension plan?

For Prelims Examination: Current events of national and international importance

For Mains Examination: GS II - Governance on Pension Scheme

Context:

Union Cabinet signed off on a major shift in the approach to provide old age income security to Central government employees, with a new Unified Pension Scheme (UPS) to be launched on April 1, 2025. About 23 lakh Central government employees are expected to benefit from the scheme, while employees who are part of an ongoing pension scheme called the National Pension System will have the option to switch to the UPS. States can also bring their employees under the UPS but will need to work out funding from their own resources

Read about:

What is the Unified Pension System (UPS)?

What are the main features of the Unified Pension Scheme? 

Key takeaways:

The Unified Pension Scheme (UPS) refers to a pension initiative proposed to streamline and unify various pension systems in India, aiming to provide a more consistent and efficient framework for pension benefits across different sectors. It is a part of broader reforms aimed at improving the sustainability and accessibility of pension systems for both government employees and individuals in the private sector.

Here are some key aspects of the Unified Pension Scheme:

• The goal is to integrate various existing pension schemes under one umbrella to ensure uniformity. This may include merging the Employees' Provident Fund (EPF), National Pension System (NPS), and other pension plans
• The scheme aims to allow portability of pension accounts, meaning individuals can carry their pension benefits even if they change jobs across different sectors or move from the private to the public sector, and vice versa
• The Unified Pension Scheme is designed to be more inclusive, extending pension benefits to unorganized sector workers and those who are currently outside any formal pension schemes
•  A unified regulatory framework would be established to ensure proper management and oversight of the pension funds, enhancing transparency and security for the contributors
• By unifying various schemes, the administration costs can be reduced, and the efficiency of managing pension funds can be improved, ultimately benefiting the contributors.

 More Information

• Government employees who joined service before January 1, 2004, were covered by the Old Pension Scheme (OPS). However, this scheme was replaced by the National Pension System (NPS) for employees who started working on or after that date.
• The OPS provided employees with a guaranteed pension of 50% of their last drawn salary, along with increases for dearness allowance. It also included a family pension amounting to 60% of the last drawn pension and a minimum pension of ₹9,000 plus dearness allowance.
• Upon retirement, employees could opt to receive 40% of their pension as a lump sum. Additionally, pensioners or family pensioners who reached 80 years of age received a 20% increase in their monthly payouts, with further increases every five years.
• Pensions were adjusted in line with salary revisions recommended by the Pay Commission, with the last such revision occurring in 2016.
• A key distinction between the OPS and both the NPS and the Unified Pension Scheme (UPS) is that OPS payments came directly from the gov